Oil Prices Rise 4% as Venezuelan Regime Is Restored

Oil prices rose 4% on global markets Monday, reflecting nervousness about Venezuelan supplies after demonstrators and the military put deposed President Hugo Chavez back in charge of the oil-producing nation.

Nearest-term future contracts for May delivery of crude rose $1.08 a barrel to $24.55, despite assurances from Petroleos de Venezuela, or PDVSA, that the nation’s production of crude oil would be back to 100% of its normal levels by today.

Meanwhile, the average price in the U.S. for a gallon of self-serve regular gasoline declined for the first time in nine weeks, the Energy Information Administration reported Monday.

Oil stocks climbed as investors fretted over production levels in Venezuela, the world’s fourth-largest crude exporter. Exxon Mobil Corp., the world’s biggest publicly traded oil company, rose 30 cents to $41.60 on the New York Stock Exchange, and the Philadelphia oil services index soared 4%.

Last week’s turmoil in Venezuela, which boomeranged from the overthrow Friday of the populist leader to his restoration to power early Sunday, has roiled crude oil markets. Chavez’s overthrow caused oil prices to plunge Friday, on traders’ assumption that the new regime would boost output and reverse Chavez’s strict adherence to OPEC quotas.

Labor unrest and deteriorating plants have cost the state-owned oil giant 1 million barrels of production capacity over the last six months. Of Venezuela’s average shipments of 2.5 million barrels a day, about half is sold to the United States.

PDVSA workers attended meetings Monday at which the Chavez government was expected to continue with conciliatory overtures. On Sunday, Chavez accepted the resignations of the PDVSA president and the entire board of directors, which he had stacked with his loyalists in February.

There was no word Monday on replacement of the PDVSA board. Asked when the oil giant might receive new leadership, a PDVSA spokesman said, “That’s for the president of the republic to say.”

On Monday, prices changed direction again. “Venezuela is the wild card,” said Peter Zipf of Platts Oilgram News in New York.

Zipf said Chavez has promised to reinstate some fired workers, which would help improve labor relations.

“Normal production seems to be resuming fairly quickly, and some big refineries should be back up to full production by Wednesday,” Zipf said. “It could be fairly routine if the workers return to work and the government brings PDVSA management and dissidents into the discussion.”

But market doubts are bound to linger about whether Venezuela can regain its equilibrium over the next several weeks given the polarization of society and the bitter experience of last week, analysts said.

Despite the gyrations in crude oil, U.S. gasoline prices are slipping because inventories are the highest they have been in months, said Bob Van der Valk, manager of fuel supply and marketing for Cosby Oil Co., an independent fuel distributor based in Santa Fe Springs.

The U.S. average for self-serve regular gasoline fell nearly a penny to $1.404 per gallon from $1.413 per gallon a week ago, the EIA said, based on a weekly survey of 800 service stations. The average is up about 30 cents since mid-February. A year ago the price was nearly 17 cents higher.

The California average slipped half a cent to $1.617 per gallon, and the Los Angeles average was unchanged at $1.581 per gallon, the EIA said.

Gasoline prices on the spot market in Los Angeles have dropped more than a dime in the last two weeks, which may translate into a nickel-a-gallon decrease in local retail prices by the end of the week, Van der Valk said.

Some market watchers expect the Organization of the Petroleum Exporting Countries to vote for a production increase at its June meeting, a move economists would welcome because it would keep a global recovery on track.

In an interview with Bloomberg News on Monday, OPEC President Rilwanu Lukman of Nigeria said the oil cartel may consider boosting production if a recovery raises demand.

If OPEC does boost production, it would be the first such increase since 2000.